The tobacco industry

The last gasp

For Big Tobacco, South-East Asia is the final frontier

STRICT regulation and the success of anti-smoking campaigns continue to hit tobacco firms' revenues in rich countries. In the biggest developing countries—China and India—governments are keen to protect local firms from Western cigarette-makers. That leaves Big Tobacco with few large markets that have growth potential and a relative lack of regulation. And of these, South-East Asia looks the most promising over the coming decade.

Within this region, Indonesia (population 238m) and the Philippines (about 96m) are the golden geese. Indonesia, one of the world's least regulated markets, is one of few Asian countries not to have ratified the World Health Organisation's treaty on tobacco control. Cigarette advertising is rampant. One in four children aged 13-15 smokes. Last year, a YouTube video of a chain-smoking Indonesian two-year-old prompted outrage among health-lobby groups in the West.

Growing and selling tobacco contributes perhaps 10% of the Indonesian government's revenues and provides millions of jobs. Roger Quarles, president of the International Tobacco Growers' Association, points out that one of the government's main goals is that “those people stay employed, even if it's at low education levels,” in part to avoid public disorder. So, Mr Quarles reckons, a crackdown on the industry is highly unlikely in Indonesia.

The biggest Western firms are diving in. Philip Morris International (PMI) bought Indonesia's Sampoerna for $5 billion in 2005, and now controls 30% of the market; the firm says it is “optimistic” about its prospects in the region. British American Tobacco bought an 85% stake in Bentoel for nearly $500m in 2009. Both companies saw sales volumes increase in Indonesia last year—mainly for kretek clove cigarettes, which account for over 90% of the Indonesian market. A data-analysis firm in Jakarta says, on condition of anonymity for itself and its client, that a tobacco giant hired it to identify and approach Indonesian “influencers” on Facebook, Twitter and other social media, so they could be offered incentives to plug its brands.

The Philippines also combines growth with light regulation. Last year PMI, already a big investor in the country, formed a joint venture with Fortune Tobacco, which makes cigarettes for low- to middle-income Filipinos. The two companies now have 90% of a $1.7 billion market, in what local news media termed a “kiss of death” to Filipinos.

Tobacco firms see growth potential in the region's low rate of women smokers (see chart). Across South-East Asia fewer than one in ten women smoke, compared with about 40-70% of men. This is a much bigger gap than in Africa and Latin America, says Vikram Pathania of the London School of Economics. A 2009 study across seven countries, by the South-East Asia Tobacco Control Alliance, found that smoking rates were rising significantly among under-16 girls in the Philippines, Malaysia, Indonesia and Vietnam. In Indonesia and the Philippines cigarettes are sold in small “lipstick packs” that seek to capture the glamour of high-end cosmetics.

Countries struggling with widespread poverty and unemployment can be reluctant to clamp down on an industry that provides so much revenue and so many jobs. However, they are also, slowly, coming to recognise the health-care costs associated with smoking, and the human suffering from tobacco-related disease. In many parts of the world the argument is swinging decisively in favour of the anti-smokers. So far, such lobby groups are relatively weak in South-East Asia, whereas Big Tobacco still has lots of friends.